EUR/USD Weekly Fundamental Analysis Aug 6-10, 2012, Forecast

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Introduction: Out of the major currency pairs the most popular and easy to trade currency pair is the EUR/USD. It has become so popular with traders these days that even when there is no visible trade to be had it is yet traded as a matter of habit. This is of course something that should be avoided and any investor who trades this currency pair wisely can do so successfully with sizable profits at the end of the day.

The first thing with trading currencies is to realize that the EUR/USD is made up of two separate currencies although considered to be one unit when taken as a pair. The weaknesses and strengths of each currency have to be taken into consideration when trading the unit as it influences the final outcome. Another factor that is often overlooked by traders or investors is that the weakening of one currency along with the strengthening of the other currency in the pair results in the generation of pips. It is according to this that entry and exit from the Forex market has to be done in order to maintain profitability.

  • The interest rate differential between the European Bank(ECB) and the Federal Reserve(FED)
  • Dollar strength drives EUR/USD lower
  • FED intervention to weaken the dollar the sends EUR/USD higher

 

Weekly Analysis and Recommendation:

The EUR/USD ended a rollercoaster week that is hard to explain or follow in words, let’s just say that traders moved and positioned themselves on rumors and hopes of central bank stimulus and policy changes, with 3 important banks having meeting this month. All 3 banks maintained current policy and rates, so markets were given nothing, except hopes of new rounds of stimulus in the near future.

As the markets acted and reacted, positioned and sold, the pair jumped up and down from highs to lows faster than you could follow.

The pair ended the week at 1.2388 a number that no one was expecting. The pair gained 1.72% on Friday after the US nonfarm payroll report showed that the US had created more jobs then forecast. With traders in more relaxed mood, they turned to higher risk assets moving from the USD and the JPY, pushing up commodity currencies and commodities.

Date

Last

Open

High

Low

Change %

Aug 03, 2012

1.2388

1.2179

1.2392

1.2167

1.72%

Aug 02, 2012

1.2179

1.2237

1.2401

1.2134

-0.49%

Aug 01, 2012

1.2239

1.2292

1.2336

1.2219

-0.43%

Jul 31, 2012

1.2292

1.2260

1.2330

1.2250

0.26%

Jul 30, 2012

1.2260

1.2303

1.2306

1.2226

-0.35%

European markets will be principally focused upon extending their interpretation of the ECB’s recent policy guidance, key factory and trade data, and some bond auctions.  Three bond auctions in Germany, Belgium and the UK will test the European appetite for safe havens versus peripheral debt in the wake of the ECB meeting.  Germany and the UK could well see higher funding costs out of these auctions as safe haven appeal diminishes somewhat.  ECB President Mario Draghi took a calculated risk by signaling further unconventional policy measures — perhaps including bond buying — essentially if beleaguered states first submit to the EFSF/ESM apparatus for financial assistance and Brussels for grander oversight.  This may be a positive development, but key risks remain.  One is the German constitutional court ruling on the ESM in September.  Another is the willingness of Spain and Italy to subject themselves to oversight from Brussels and Germany.  Third is the ability of Spain and Italy to actually achieve progress on fiscal targets given a checkered pattern in Greece, Portugal, Spain and Italy thus far throughout the crisis.

So to put it in easy to understand terms, The ECB, Spain, Germany, Greece and Italy will be the focus of the markets along with eco data.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Major Economic Events for the week of Aug 30 – Jul 3 actual v. forecast for Euro, GPB, the Franc, and USD

Date

Currency

Event 

Actual

Forecast

Previous

Jul 30

EUR

Spanish Flash GDP q/q

-0.4%

-0.4%

-0.3%

 

EUR

Italian 10-y Bond Auction

5.96|1.3

 

5.82|1.7

Jul 31

USD

CB Consumer Confidence

65.9

61.5

62.7

Aug 1

CNY

Manufacturing PMI

50.1

50.4

50.2

 

GBP

Manufacturing PMI

45.4

48.6

48.4

 

USD

ADP Non-Farm Employment Change

163K

121K

172K

 

USD

ISM Manufacturing PMI

49.8

50.3

49.7

 

USD

FOMC Statement

     

Aug 2

GBP

Construction PMI

50.9

48.2

48.2

 

EUR

Spanish 10-y Bond Auction

6.65|2.4

 

6.43|3.2

 

GBP

Asset Purchase Facility

375B

375B

375B

 

GBP

Official Bank Rate

0.50%

0.50%

0.50%

 

EUR

Minimum Bid Rate

0.75%

0.75%

0.75%

 

EUR

ECB Press Conference

     
 

USD

Unemployment Claims

365K

375K

357K

Aug 3

GBP

Services PMI

51.0

51.6

51.3

 

USD

Non-Farm Employment Change

163K

101K

64K

 

USD

Unemployment Rate

8.3%

8.2%

8.2%

 

USD

ISM Non-Manufacturing PMI

52.6

52.1

52.1

Historical: From 2010 to Present

Highest: 1.4940 USD on May 04, 2011.

Average: 1.3434 USD over this period.

Lowest: 1.1877 USD on Jun 07, 2010.

 

Economic Highlights of the coming week that affect the Euro, GBP, CHF and the USD

Date

Time

Currency

Event 

Previous

Aug 6

8:30

EUR

Sentix Investor Confidence

-29.6

 

23:01

GBP

BRC Retail Sales Monitor y/y

1.4%

Aug 7

7:00

CHF

Foreign Currency Reserves

364.9B

 

7:15

CHF

CPI m/m

-0.3%

 

8:00

EUR

Italian Industrial Production m/m

0.8%

 

8:30

GBP

Manufacturing Production m/m

1.2%

 

10:00

EUR

German Factory Orders m/m

0.6%

 

14:00

GBP

NIESR GDP Estimate

-0.2%

Aug 8

5:45

CHF

SECO Consumer Climate

-8

 

9:30

GBP

BOE Inflation Report

 
 

10:00

EUR

German Industrial Production m/m

1.6%

 

12:30

USD

Prelim Nonfarm Productivity q/q

-0.9%

 

12:30

USD

Prelim Unit Labor Costs q/q

1.3%

 

14:30

USD

Crude Oil Inventories

 

Aug 9

8:00

EUR

ECB Monthly Bulletin

 
 

8:30

GBP

Trade Balance

-8.4B

 

12:30

USD

Trade Balance

-48.7B

 

12:30

USD

Unemployment Claims

 

Aug 10

6:45

EUR

French Industrial Production m/m

-1.9%

 

8:30

GBP

PPI Input m/m

-2.2%

 

12:30

USD

Import Prices m/m

-2.7%

 

18:00

USD

Federal Budget Balance

-59.7B

Upcoming Government Bond Auctions

Date Time Country 

Aug 06  09:10  Norway

Aug 07  00:30  Japan

Aug 07  09:15  Austria

Aug 07  14:30  UK

Aug 07  17:00  US

Aug 08  09:30  Germany

Aug 08  10:00  Norway

Aug 08  15:30  Italy

Aug 08  17:00  US

Aug 09  15:30  Italy

Aug 09  17:00  US

Aug 10  10:00  Belgium

Aug 13  09:10  Italy

Aug 13  09:10  Norway

Aug 13  09:30  Germany

Aug 14  09:10  Greece 

Aug 14  09:10  Italy

Aug 14  09:30  Belgium

Aug 14  14:30  UK

Aug 15  09:10  Sweden

Aug 16  09:30  UK

Aug 16  15:00  US

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